One Thing California's Chief, PG&E Agree On Is a Wildfire Fund
(Bloomberg) -- California’s governor and bankrupt power giant PG&E Corp. agree on one thing: The state needs a fund to deal with the liabilities utilities are facing because their equipment keeps igniting catastrophic wildfires.
Both Governor Gavin Newsom and PG&E are floating plans that would establish a wildfire fund for utilities to tap to pay out fire claims. But it’s Newsom’s proposal in particular that comes with a deadline fast approaching.
The governor is rushing to sell his idea to California lawmakers before a July 12 recess. If he can’t, the state’s two other major utilities - Edison International’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric - may wind up with junk credit ratings. And with the state heading into another wildfire season, any one of them may be a power line-sparked blaze away from financial ruin. PG&E, the state’s largest power company, has already filed for Chapter 11 to deal with an estimated $30 billion in liabilities from fires its equipment ignited in 2017 and 2018.
Newsom told reporters at an event in San Francisco on Friday that he has “hope and confidence” that California’s policy makers can get legislation passed in time -- that is, he said, “if they’re committed to this issue.”
The governor is proposing two alternatives for a fund. One would be a $10.5 billion liquidity fund that would serve as a line of credit for utilities. The state would fund it by extending a charge on utility bills and securitizing the revenue through state-issued bonds, according to the governor’s aides. The other option is a $21 billion insurance-like fund. Utilities would kick in an additional $10.5 billion of their own money for that one, with PG&E shelling out the most because of its higher fire risk. SoCalEd and San Diego Gas & Electric would get to decide which kind of fund to form, with PG&E bound to the decision.
PG&E, meanwhile, is floating the idea of a fund that would be financed with $14 billion in state bonds. The company would stick $3 billion in it, and the rest of California’s utility owners would contribute another $3 billion. That proposal is a part of a $31 billion reorganization plan that the company hopes will have it exiting bankruptcy in March, according to a document reviewed by Bloomberg.
$3 Billion Investment
Newsom’s proposal comes with strings attached, including $3 billion in shareholder money that the governor wants the state’s utilities to pony up for safety measures before tapping the fund. Under his proposal, PG&E would have to spend the most. The companies would also have to earn an annual certificate by tying executive compensation to safety performance; pass a “safety culture assessment” and comply with approved fire plans, among other things.
There are parts of PG&E’s and Newsom’s proposals that appear to be perfectly aligned. PG&E is proposing to emerge from bankruptcy by March, and Newsom is calling for an exit by June. He also wants the company to settle its existing wildfire claims before gaining access to the fund, and PG&E’s bankruptcy plan would create a $14 billion fund to do just that.
“That, to me, says they’re talking,” said Kit Konolige, a Bloomberg Intelligence utilities analyst.
But if it’s any indication of how far along PG&E is in the settlement process, the company has only reached one major settlement from the last two fire seasons -- an agreement to pay $1 billion to 14 cities, counties and other local government agencies.
Newsom said Friday that he remains concerned about the credit ratings of SoCalGas and SDG&E. S&P Global Ratings has warned that they both face downgrades below investment grade should California legislators fail to act. San Diego Gas & Electric said it’s working with the governor and lawmakers to get legislation passed by July 12, and Edison said it appreciates Newsom’s “continued sense of urgency.”
PG&E said it’s “looking at all options when it comes to working with the governor and legislature.” On Friday, the company’s shareholders approved a new board crafted by hedge-fund investors that will now be responsible for steering the company through the largest utility restructuring in U.S. history.
As for the legislature itself, Bill Dodd -- the California senator who has taken lead on wildfire issues -- stopped short of saying whether he would back Newsom’s plan on Friday. He instead offered up in a statement, “We look forward to carefully vetting the details of his draft and engaging in a collaborative process to develop a solution.”
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